OGC Op. No. 08-07-06

The Office of General Counsel issued the following opinion on July 14, 2008, representing the position of the New York Insurance Department.

RE: Required Specific Language for § 2119 Agreements

Questions Presented:

1) Does the Department require that broker service agreements contain specific legal language to be in compliance with Insurance Law § 2119?

2) If so, does the Department have a template for such broker service agreements?

Conclusions:

1) No. The Department does not require specific legal language. However, such agreements must contain all the information required by Insurance Law § 2119.

2) No. There is no template for such a document.

Facts:

The inquirer is a licensed insurance broker that is in the process of establishing an insurance brokerage in New York. The inquirer asks whether broker service agreements pursuant to Insurance Law § 2119 must include certain language, and if so, whether the Insurance Department has a template to that end.

Analysis:

An insurance broker must comply with the requirements in Insurance Law §§ 2119(c) and (d) in order to collect additional compensation other than commissions from an insured. That section states in pertinent part as follows:

(c)(1) No insurance broker may receive an compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the sale, solicitation or negotiation of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation.

. . .

(d)(1) No insurance broker shall, in connection with the sale, solicitation or negotiation, issuance, delivery or transfer in this state of any contract of insurance made or negotiated in this state, directly or indirectly charge, or receive from, the insured or prospective insured therein any greater sum than the rate of premium fixed therefore by the insurer obligated as such therein, unless such broker has a right to compensation for services created in the manner specified in subsection (c) of this section.

Therefore, a broker service agreement under Insurance Law § 2119 must be “signed by the party to be charged” and must “specify[] or clearly defin[e] the amount or extent of such compensation.” The Department does not require that any specific language be contained in such agreements, provided that the agreement complies fully with the requirements established by Insurance Law § 2119.

Please be advised that the Department has previously opined that a broker service agreement under Insurance Law § 2119 must specify the period of time that it covers, and that the compensation must relate to ongoing services performed by the broker. The insured also must have the right to cancel each year prior to the broker performing the additional services. See Office of General Counsel Opinion No. 03-03-11, dated March 17, 2003. In addition, Circular Letter No. 9, issued by this Department on April 4, 2004, provides further guidance about Insurance Law § 2119 agreements. (For the inquirer’s convenience, a copy of that Circular Letter is enclosed herewith.)

The inquirer also asks whether the Department has a template for § 2119 broker service agreements, but because the Department does not require that specific language be included in such agreements, there is no template. However, as explained earlier, any such agreement must fully comply with the requirements of Insurance Law § 2119.

For further information, you may contact Supervising Attorney D. Monica Marsh at the New York City office.